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NC Budget and Tax Center

This is the 6th post of a Budget and Tax Center blog series on public services and programs that face cuts in the budget process or have been underfunded in past years. See the other posts here.

If the Senate budget passes this year, rural communities are going to be living through a nightmare. Despite promises by the McCrory administration to support economic development in rural North Carolina, the budget passed by the state Senate last week continues long-term disinvestment in the very initiatives that rural communities need in order to create jobs and grow their local economies.

For most of the past 30 years, the state’s primary actor in promoting economic development in the state’s 85 rural counties was the N.C. Rural Economic Development Center. Incorporated as a state-charted nonprofit in the late 1980s, the Rural Center used a mix of state funding and private fundraising to support a range of rural development work—everything from small town revitalization efforts and building rehabilitation grants, to small business lending and workforce training programs.

Over the past three years, however, the legislature has significantly reduced state investment in these important activities, undermining the state’s ability to promote job creation and economic revitalization in rural communities, many of which are still grappling with long-term decline in manufacturing. Even in the darkest period of the Great Recession in FY 2009, the state strongly supported these efforts by funding the Rural Center at $24 million. Unfortunately, the new legislative majority in 2011 significantly reduced support for rural development, cutting the Rural Center’s budget down to $16 million.

Then, in last year’s budget, the General Assembly eliminated all state funding for the Rural Center, instead opting to move some of these operations into a newly-created Division of Rural Economic Development in the N.C. Department of Commerce. As part of this move, the legislature reduced state funding for rural development even further, from $16 million in FY 2012-13 for the old Rural Center down to just $13.8 million in FY 2013-14 for the new Rural Development Division, of which $2.5 million was dedicated to a newly created Limited Resource Communities grant program intended to support economic development specifically in designated low-resource communities (e.g., the poorest 40 counties in the state). And the damage to rural development extends beyond the dollar reductions—the new division simply doesn’t carry out many of the specialized initiatives once conducted by the Rural Center: the state no longer supports small business lending in rural areas, targeted rural workforce development, or small town revitalization efforts.

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Lindenmuth

Lindenmuth

If there’s one news story about North Carolina state government that you don’t want to miss this morning it’s NC Policy Watch reporter Sarah Ovaska’s new investigative report on the McCrory administration’s “jobs czar,” Richard Lindenmuth. As Ovaska reports, the man charged with overseeing the privatization of the state’s business recruiting efforts (something that former Republican governor Jim Martin calleda “dumb and dangerous idea”) has some controversies and questions in his own background in private industry. This is from the report:

“N.C. Policy Watch investigation into Lindenmuth’s background uncovered federal court records showing that controversy has marred his career in recent years. He placed his Raleigh consulting company, Boulder International, into bankruptcy in 2010 and had his fiduciary abilities called into question by a federal bankruptcy judge in a separate incident.

U.S. Bankruptcy Judge Barbara Houser, the chief bankruptcy judge for the Northern District of Texas, found that Lindenmuth improperly overcharged expenses by nearly $117,000 while consulting for a home décor company undergoing bankruptcy, a situation she found ‘very, very troubling’ and potentially criminal.

‘[T]his appears to violate the criminal violations of the Bankruptcy Code, and I mean this is not right,’ Houser said, according to a hearing transcript.

Court records don’t show that law enforcement ever pursued the situation, and Lindenmuth denied any wrongdoing in court records and to N.C. Policy Watch. He did, however, agree to return $250,000, nearly half of what he was paid for seven months of work at the company.”

Click here to read the rest of the story including more of Judge Houser’s scathing characterization’s of Lindenmuth’s actions. It will be interesting to see if Gov. McCrory stands by the appointment given the numerous controversies already swirling around his administration’s economic development efforts.

NC Budget and Tax Center

Three counties get 56 percent of total incentive dollars

The money North Carolina spends on incentives to grow businesses and create jobs overwhelmingly favors the state’s most wealthy urban areas at the expense of the state’s most distressed—often rural—areas that need the most help, according to a report released yesterday by the Budget & Tax Center.

The state has five major incentive programs that were originally created to target business development resources to economically distressed and rural areas in the state. These programs are known as the OneNC Fund, the Job Development Investment Grant (JDIG), the Jobs Maintenance and Capital Fund, the Industrial Development Fund (IDF), and the IDF-Utility Fund. Unfortunately, the programs have not lived up to their promise and have invested more of these resources in the 20 wealthiest counties (designated Tier 3 counties by the Department of Commerce) than in the poorest 40 counties (designated Tier 1), the report finds.

Specifically, the report looks at the incentive awards made by these five programs from 2007 to 2013 and finds the following mismatches in investment:

North Carolina has awarded more than triple the amount of incentive dollars to projects in the wealthiest twenty counties than projects in the state’s 40 most distressed counties. If the state were truly targeting economic development resources to the regions that need it most, we would have spent more in the counties that are most distressed and need investment the most. Unfortunately, we see the opposite. The Department of Commerce has granted more than $840 million through its major incentive programs, and $592 million—more than 70 percent of the money—went to the state’s least distressed, Tier 3 counties.

The state‘s incentive projects promised to create or retain two jobs in the 20 wealthiest counties in the state for every one job promised to the 40 poorest counties. Given that the distressed Tier 1 counties are the most in need of jobs, effectively targeted incentive programs would attempt to deliver more jobs to these counties than to the wealthier Tier 3 counties. Yet the opposite is happening—the state has implemented incentive projects that promised to create almost 90,000 jobs in the state’s least distressed counties, more than double the 42,235 jobs promised to the most distressed Tier 1 counties.

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The interim head of North Carolina’s business recruiting efforts is blaming the state’s public records law for the loss of a large jobs deal that instead went to Texas.

But the two states have similar laws, and both allow the public to see details about economic development proposals once a deal is announced.

Lindenmuth

Lindenmuth

Richard Lindenmuth, the head of a proposed public-private entity to run the state’s economic development efforts, told the Triangle Business Journal that Texas had an advantage over North Carolina when it came to wooing Toyota officials because of public record laws.

Charlotte  narrowly lost out on a bid for the proposal, which will move 4,000 jobs to a Toyota corporate campus in Plano, Texas, according  to the Charlotte Business Journal.  Texas is offering $40 million in incentives, according to a press release from Texas Gov. Rick Perry’s office.

“Why would a CEO ever let us know where they are looking if they are subject to public records,” Lindenmuth said, according to an interview with the Triangle Business Journal.  “Texas knew, but we didn’t. We can’t even have an open, frank discussion about everything.”

It’s unclear what Lindenmuth meant by his comments.  A call requesting comment from the state’s commerce department was not immediately returned.

But there’s little difference between the public records laws of the two states when it comes to economic development deals.

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NC Budget and Tax Center

At his Tax Day press conference, Governor McCrory repeated the often-heard claim that the effect of cutting taxes on the state’s economy speaks for itself. Last year’s tax cuts may be speaking, but they’re not telling the story its proponents hoped—for the very good reason that tax cuts are just a poor strategy for promoting business growth and long-term job creation.

Here’s the Governor on Tuesday:

“Businesses are relocating to North Carolina because of the changes we made in our tax code and that speaks for itself.”

This claim does not bear up under serious scrutiny. In fact, decades of evidence support the opposite—taxes don’t drive business location decisions. Rather, the public investments that taxes make possible are the most important factors in determining where companies decide to locate—investments like an educated workforce, infrastructure, strong industry clusters, and proximity to research and development institutions.

So let’s examine the evidence Governor McCrory presented, starting with Lee Controls—a New Jersey-based company that recently relocated to Brunswick County and cited tax reform as one of the major reasons for their move. The company is promising to create just 77 jobs over several years. While creating even one new job moves the state in a positive direction, the fact remains that trying to dig North Carolina out of the job losses from the Great Recession is going to require more employment growth than can be generated by one 70-job project at a time.

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